SEC Files Emergency Action to Halt Green-Product Themed Ponzi Scheme

FOR IMMEDIATE RELEASE
2011-201

Washington, D.C., Oct. 6, 2011 – The Securities and Exchange Commission announced that it obtained an emergency court order today to halt a Ponzi scheme that promised investors rich returns on water-filtering natural stone pavers, but bilked them of approximately $26 million over a four-year period.

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The SEC’s complaint, filed in U.S. District Court for the Southern District of New York, alleges that convicted felon Eric Aronson and others defrauded investors in PermaPave Companies, a group of firms based on Long Island, N.Y., and controlled by Aronson.

About 140 individuals, many working in the construction or landscaping business, invested in the scheme between 2006 and 2010, the SEC alleged. Investors were told that PermaPave Companies had a tremendous backlog of orders for pavers imported from Australia, which could be sold in the U.S. at a substantial mark-up, yielding monthly returns to investors of 7.8% to 33%. In reality, the complaint states that there was little demand for the product, and the cost of the pavers far exceeded the revenue from sales.

Lacking the profits promised to investors, Aronson and two other PermaPave Companies executives, Vincent Buonauro Jr., and Robert Kondratick, used new investments to make payments to earlier investors and then siphoned off much of the rest for themselves, buying luxury cars, gambling trips to Las Vegas, and jewelry. In addition, the complaint alleges that Aronson used investors’ money to make court-ordered restitution payments to victims of a previous scheme to which he pleaded guilty to conducting in 2000.

“Aronson and his associates operated the PermaPave Companies as a classic Ponzi scheme,” said George S. Canellos, Director of the New York Regional Office. “They created the façade of a profitable business, promised investors extraordinary rates of return, and used much of their investors’ money to fund their own lavish lifestyle.”

The U.S. Attorney’s Office for the Eastern District of New York, which conducted a parallel investigation of the matter, today filed criminal charges against Aronson, Buonauro, and Kondratick, who were arrested earlier today.

According to the SEC’s complaint, when investors began demanding money owed to them, Aronson accused them of committing a felony by lending the PermaPave Companies money at the interest rates he promised them, which he suddenly claimed were usurious. Aronson and his attorney, Fredric Aaron, then allegedly made false statements to persuade investors to convert their securities into ones that deferred payments owed them for several years.

The SEC also alleges that the defendants used some of the money raised through the Ponzi scheme to purchase a publicly traded company, Interlink-US-Network, Ltd. Several months later, the SEC said Interlink issued a Form 8-K, signed by Kondratick, which falsely stated that LED Capital Corp. had agreed to invest $6 million in Interlink. According to the complaint, LED Capital Corp. did not have $6 million and had no dealings, let alone any agreements, with Interlink.

U.S. District Court Judge Jed S. Rakoff granted the SEC’s request to freeze assets of the defendants and eight relief defendants. The SEC is seeking preliminary and permanent injunctions against the defendants, and to have them return their allegedly illicit profits with prejudgment interest, and pay civil monetary penalties. In addition, the SEC seeks to bar Aronson, Kondratick, and Aaron from participating in penny-stock offerings and from serving as officers or directors of public companies.

The SEC’s complaint charges Aronson, Kondratick, Buonauro, the PermaPave Companies, and Interlink with violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and charges Aaron with aiding and abetting the Section 10(b) and Rule 10b-5 violations. The complaint charges Interlink with violations of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-11 thereunder, and charges Aronson, Kondratick, and Aaron with aiding and abetting these violations. The complaint also asserts violations of Section 5(a) and 5(c) of the Securities Act as to Aronson, Buonauro, and the PermaPave Companies and violations of Section 15(a) of the Exchange Act as to Aronson and Buonauro.

The SEC acknowledges the assistance of the U.S. Attorney’s Office for the Eastern District of New York and the Securities Fraud Squad of Federal Bureau of Investigation in connection with this matter.

Celeste Chase, Daniel Michael, and Desiree M.C. Marmita, conducted the SEC’s investigation; Howard Fischer of the SEC’s New York Regional Office will lead the litigation.